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Oil consumption emits around a third of total carbon dioxide emissions. So, the 2.6 Mbd (3%) drop in oil demand would pull emissions down by ~1% overall. The question is whether coal, natural gas, and land use change/forestry would push emissions more than 1% to keep them climbing higher. Since the global economy is forecast to have negative growth, a significant increase in coal and natural gas consumption is unlikely. Therefore, my current prediction is that global greenhouse gas emissions will fall at least .5% in 2009.

As I said in April, this fall in global emissions gives hope that we are entering the era of declining carbon pollution. But the only way we can continue such a trend sustainably and prosperously is through rapid deployment of energy efficiency and renewables to begin replacing fossil fuels. We need to support the development of wind and solar markets from ~35 GW in 2008 to 50+ GW in 2010 and beyond.

Onwards in the Sustainable Energy Transition-

The executive summary of their 800-field assessment projects a reference business-as-usual scenario as well as two climate mitigation scenarios through 2030 in its annual World Energy Outlook. Their Outlook includes major shifts from last year stemming largely from a deeper understanding of accelerating declines in the bulk of global oil fields. Their research found that smaller oil fields decline faster (especially offshore) than the giants and super-giants of old. So, as we become more dependent on offshore and smaller oil fields for the bulk of our new oil, the overall decline rate accelerates. They estimate natural decline rates are currently 9% per year and expect rates to rise to 10.5% by 2030. Advanced technology and investment allows producers to slow the current rate to 6.7%, though they project it will increase to 8.6% by 2030. Based on these estimates, producers will have to add ~5.5 million barrels per day (Mbd) in new fields in 2009 and a growing amount each year afterward just to maintain current production levels ~86 Mbd.

If you match up this 6.7% decline rate to the Oil Megaprojects Database maintained by Petroleum Review editor Chris Skrebowski, we get peak global oil production by 2012. Beyond that year, the world has less and less oil to transport its people and goods. This wouldn’t mean the world runs out of oil in 2013 by any means — 80+ Mbd of oil will still allow millions of trucks to roll and airlines to fly. But prices would increase to levels to slow demand growth, probably above $100 per barrel again. The IEA calls current prices ~$60 per barrel temporary, believing that a return to average economic growth will bring higher prices. As I’ve mentioned in previous blogs, they think any further fall in price is dangerous for oil market balance since it could delay high-cost oil projects that are needed to come online to make up for field declines in the years ahead.

Contrary to the Oil Megaprojects conclusion, the IEA still believes oil production can grow through 2030, thanks to unconventional oil sands, heavy oil, and oil shale making up for declines in conventional oil. But their hopes are precariously pinned on maintaining current high investment levels ~$350 billion per year and increased cooperation between international oil companies (IOCs) and national oil companies, especially in the Middle East. At a time when many oil producing nations are getting more nationalistic and making terms less favorable for IOCs, the IEA projects greater cooperation. For instance, the IEA depends on Saudi Arabia increasing its production by ~50% to over 15 Mbd — even though their current policy is to grow capacity to only 12.5 Mbd, leaving some oil in the ground “for future generations.”

For the climate, the 9% lower oil consumption estimate in this year’s WEO for 2030 (106 Mbd rather than 116) translates into a reduction in carbon dioxide emissions. But since coal is a key substitute, the overall reduction is only 1% and does not prevent dangerous emissions levels. The IEA then makes a serious call for climate change mitigation, outlining scenarios of emissions reduction to achieve 550 parts per million (ppm) carbon dioxide in the atmosphere and 450 ppm. The climate scenarios not only help the environment but they also lower the price of oil significantly and create trillions of dollars in fuel savings over the years. But to get implemented, either scenario will take serious political will and progress in post-Kyoto negotiations culminating in Copenhagen next year.

The report highlights the exact reason I launched SET — our world faces twin challenges of oil energy security and climate change. The best policy choices are ones that mitigate both challenges simultaneously: a Sustainable Energy Transition based on rapid deployment of efficiency and renewables.

With the full report coming out on Wednesday, I will share more information on this groundbreaking report in the days ahead.

The Financial Times leaked information from a draft IEA report predicting stagnation in global crude oil production through 2030. In the organization’s first comprehensive look at the hundreds of large fields that provide us with oil, they have apparently found decline rates of 6% to 9%. To offset such decline rates, they believe investment of $360 billion per year is required — higher than current investment levels. The consumption level they project in 2030 is 106.4 million barrels per day (Mbd) rather than their projection last year of 116.3 Mbd. This more than 9% reduction in oil consumption would mean a significant decrease in greenhouse gas emissions. The stagnation in supply would mean IPCC climate emissions models need to be updated to represent lower emissions from oil consumption.

But the IEA reminded readers today that the Financial Times had taken information from an unauthorized draft report. The IEA said for eager reporters and the public to wait until the 12th of November when they officially publish the report to get more accurate and updated information that IEA staff will be ready to discuss.

In the US, the weekly EIA oil report found that crude supplies increased less than expected and gasoline supplies fell, but distillates increased toward average levels. Lower demand continues to make up for lower than average inventories for the time being. The question remains whether winter weather will make heating fuel demand higher than usual or the lower pump prices will spur an increase in consumption in the weeks ahead.

In sum, the US oil supply system is in balance for now. But as an importing country, we need to continue to lower oil consumption so we are ready for continued declines in production at our own fields and those in exporting countries such as Mexico, Norway, and Russia. The bright side of this necessary transition from oil is the potential to deploy climate-friendly efficiency and renewable energy in its place.

A quick review of OPEC’s interest shows that relying on the cartel to increase their share of global production from ~40% today is a precarious consumptive future. Similar to a monopolist, their optimal action is to curtail production until the point where demand becomes unit elastic. With the extreme inelasticity of oil demand (since there are few substitutes for most of its uses), this point could be as high as $250 per barrel or more. It is thus my opinion that we should prepare for oil at $250-$300 per barrel as we plan for the future. If the price of oil falls toward $100 per barrel in the coming months due to lower US consumption, that doesn’t mean we should go back to business as usual. It just means that a recession in the world’s largest consumer of oil does indeed take pressure off of the tight oil market. An economic recovery in the US would bring new record prices very quickly unless one thing happened: Our best hope to weather the storm of a peak in non-OPEC and potentially global oil production is to kickstart a sustainable energy revolution that is buttressed by advances in efficiency and an acceleration of wind and solar power deployment. Governments, from the municipal to the national level, should shift their priorities in this direction — planning communities that foster efficient transport of goods and people will be crucial. The market will help in this transition, but allowing the amoral invisible hand to do all the work could erode social cohesion and cause unnecessary hardship throughout the public. To be ready, we need to shift public funds from expanding airports, constructing new highways, and subsidizing suburbia to building more bike lanes and pedestrian pathways, supporting research for efficiency and plug-in hybrid electric vehicles, and connecting communities to top-notch communication tools that reduce the need to travel. If the IEA is this alarmed, we all have a lot of work to do. Good luck, and please let SET know how we can help you as you navigate your sustainable energy transition.